Money Mic Why I Would Never Buy a New Car

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Money Mic: Why I Would Buy a New Car

Posted on Jul 11, 2012

People a lot of opinions about money.

In our Mic ” series, we hand over the to someone with a strong on a financial topic. These are views, not ours, but we welcome responses.

Dreaming about an vacation? Tired of that credit card balance? for a home renovation?


Maybe the reason you’re trouble affording those is because of your car.

reading Zac Bissonnette’s new book, to Be Richer, Smarter and Better Than Your Parents ,” I understand why so many people compelled to own cars they afford. In it, he writes that the monthly payment on a new car is $479, and doesn’t even count the gas and

If you ask me, that’s crazy!

Dr. Thomas who co-authored “The Millionaire Door “ and wrote Women Next Door ,” been studying millionaires for In his research, he found that the popular car make among is a Toyota. Bet you didn’t guess one! Bissonnette found results–in his book he says, drivers of luxury cars rich, and most rich don’t drive luxury

I Still Drive the Car I Got at Age 16

I drive the car I’ve ever owned, a Toyota Corolla I’ve had I was 16. It was a used car when I got it, and it now has almost miles on it. I’m hoping it makes it to My husband bought a 1998 Honda Civic with miles on it for less than That was seven years and he’s still driving he bought a car that was hail-damaged. But been an extremely reliable He paid it off in nine months and had a car payment since.

People forget about all the fun things you can do you don’t have a car payment. My and I love to travel, and we choose to really cheap cars so we can save money every for a yearly vacation.  We’ve to amazing places all over the Last year we went to for two weeks, and we’ve visited Italy, Mexico and Puerto

The thing is, we wouldn’t be able to as much if either of us had a car payment. And is all about choices.

In our case, feeds our souls, so we choose to do it. If means we drive unimpressive that’s okay with us. (We max out our Roth IRAs each for those who are curious.)

The Average Household Can’t Afford

I can’t imagine spending $500 a month on a car. The American household, which about $51,000 per year. afford to spend that financial experts recommend you keep your car-related (car payment, gas insurance) under 20% of net pay. but if you’re buying a car on a $51,000 salary, then you be spending around 25% of your net pay on expenses.

At LearnVest, we recommend 50% of your budget to essentials, includes not only your costs but also your utilities and groceries. If you’re 25% of your overall budget on car that only leaves you 25% for home and food.

By the way, if you’re one of those looking to cut back in other so you can achieve your financial LearnVest came up with Cut Costs Bootcamp. a ten-day program to help you save money around the house, on and, yes, even on transportation costs.

You Could Do Way Better With That

When I suggest that sock away $416 a to max out their Roth IRA, think that sounds a ton of money. But many of those people view a $400-to-$500-a-month car as a necessity.

It isn’t.

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Saving for should be the priority, not driving a car. If instead of outlandish car you maxed out your Roth IRA year for 40 years and earned 7% you’d retire with a million dollars!

The problem is so many 20-somethings get caught in the trap, then have a car for the rest of their lives. Or get sucked into leasing a so they can drive an even car. Don’t be one of those Keeping up with the Joneses is pointless, as even the wealthiest us feel poor sometimes .

An even better option: Buy next car with cash.

If you a monthly car payment, you’re money on financing costs could otherwise be going your emergency fund or retirement accounts  each to Forbes. the average new car costs in 2012. If you financed 100% of a new car over six years with a 5% rate, your payment be $488 per month. You will paid $4,835 in interest the life of the loan.

So your car would end up costing you $35,138. $5,000+ you could have put to use elsewhere.

If you “must” finance a check out something in the $5,000-$15,000 and try to finance it in half the time years). But to my mind, you can get a car for a few thousand and you may be surprised how long it can last.

How to Get Out of the Trap

What can you do instead? in your car for a less expensive one and cut car payment in half. If you traded in $30,000 vehicle for one that half as much, you’d owe $15,000 less. Consider that first. Then pay on your loan. Once your car is off, keep saving the you used to spend on your car so you can pay cash for your next

The next time you’re for a new vehicle, ask yourself: Do you want to an impressive car, or do you want to be a

I guess you already know I chose.

Sophia Bera is a Financial Planner® on the LearnVest She lives with her husband in

LearnVest Planning Services is a investment adviser and subsidiary of Inc. that provides plans for its clients. Information is for illustrative purposes only and is not as investment, legal or tax planning Please consult a financial attorney or tax specialist for advice to your financial situation. specifically identified as such, the interviewed in this piece are clients, employees nor affiliates of Planning Services, and the views are their own. LearnVest Services and any third parties in this message are separate and and are not responsible for each other’s services or policies.

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